Top 10 stock market myths

Perhaps you’ve heard that the stock market is a casino? Or, it’s a place that’s only accessible to the rich and famous? There are plenty of rumours floating about and we’re going to be explaining and debunking some of the biggest myths. Hopefully giving you a clearer understanding of how stock markets actually work.

What is a stock market myth?

This refers to widespread nuggets of information and general misconceptions that usually have very little truth to them.

Stock market myths tend to be circulating stories that often travel by word of mouth and don’t have much grounding in actual facts.

Nevertheless, it’s something worth addressing. Because, these tall tales can lead beginner investors to make mistakes, or sometimes put people off the idea of investing entirely.

Top 10 myths about the stock market and investing

We’re going to reveal ten of the biggest stock market myths, explain if there’s any truth to them, and clarify what you should know about investing.

1. The market is a casino and investing in stocks is gambling

This is definitely the myth you’ll come across the most. Unlike playing blackjack or roulette, investing in stocks is not a game of chance.

Chance and luck can play a role, but the majority of investing comes down to research, skill, and patience.

In a casino, the odds are stacked against you. It’s how casinos make money. The stock market isn’t designed to beat you. In fact, quite the opposite is true most of the time.

2. Stock market investing is too complicated

Investing only has to be as complex as you make it.

There definitely are complicated strategies and forms of in-depth technical analysis that some investors use.

But, if you want to keep things simple, you can invest passively in index funds and ETFs (exchange-traded funds).

Or, if you want no part whatsoever in choosing investments, you can use a robo-advisor to pick all your stocks and manage everything for you.

3. The stock market is for rich people

This may have been the case in the past when London was run by the gentrified elite. But it’s far from the truth today.

There are investing platforms you can use that will let you open up an account for free and start investing with as little as £1.

4. A low share price means a stock is cheap

Sometimes investors get confused when looking at a stock. Thinking that if the share price is low, they are getting a bargain or buying a ‘cheap’ investment.

The truth is, the share price only tells a small part of the story. It doesn’t reveal anything about value.

To calculate the value of a stock, you need to look at its whole finances. This means taking into account how much money the company is making and spending.

5. You have to buy whole shares

Another popular stock market myth is that you have to buy whole shares of companies.

Sometimes stocks will have a high price tag. And, buying a full share can be expensive, putting it out of reach for investors with only smaller amounts to invest.

The reality is, many modern brokerage accounts will now let you buy fractional shares. This means buying a portion of a share, making it more affordable to invest and own a piece of the stock.

6. What goes up must come down and vice versa

Plenty of investors buy into this stock market myth.

Sometimes even experienced investors make the mistake of thinking that they should buy a stock simply because the share price has fallen. Believing, it’s guaranteed to go back up at some point.

There are also those who believe the opposite, that if a stock’s price has risen, at some stage it will come back down again.

The reality is that stocks can continue moving upwards or downwards and never again return to a previous price. The performance of the underlying business can change over time. This can be both positive or negative, and will be reflected in the share price.

7. Follow your instincts and emotions

This is a stock market myth that can be particularly gruesome and difficult to wrap your head around.

In most areas of life, going with your gut and doing what feels best can serve you well. When it comes to investing, one of the best things you can do is avoid acting out of emotion, or making decisions based on instinct.

Nothing in our evolution has given us the mental tools to be successful investors. It’s usually the people who can ignore these feelings and move in the opposite direction to the crowd that come out on top. Success in the stock market can often be a psychological battle.

8. Investment companies and brokerages are scams

Most investment companies do charge fees. And, they are trying to make money themselves. However, legitimate investment platforms are not designed to take all your money or scam you.

Most brokerages have fees that are based upon a percentage of your holdings. So, the more money you make, the more money it makes.

It’s really not in a platform’s interest to see you get wiped out of the market, because that means the loss of a customer and less money for them.

9. Beating the market is impossible

Attempting to beat the stock market shouldn’t be everyone’s goal, but the idea that it can’t be done is definitely a myth.

The number of investors and funds that regularly outperform the market is quite low.

But, you don’t necessarily need to beat the market for a great investment return. Take the S&P 500 index for example. It’s the major US stock market index, and from 1957 to 2021 has had an annualised average return of roughly 10.5%.

10. Blue-chip stocks are always a safe bet

A large number of investors choose blue-chip stocks because of their relative stability. And, the widespread recognition of the underlying company or brand.

But, it’s definitely a market myth that these stocks are always guaranteed to make money and never fail.

The nature of business means that even the biggest stocks can sometimes fall from grace. There might be less chance of this happening with a blue-chip stock, but never say never.

Myths about investing fees

Some investing platforms and wealth management companies do charge high fees. But, there are also plenty of cheap, and even free ways to invest.

Sometimes added fees can mean better customer service, or the security of going with a big name that everyone trusts. This is why banks often have high costs for investing services.

Fees can really eat into your returns in the long run and these days there are plenty of cheap UK investing platforms out there if low costs are important to you.

How do I know if something is a myth?

When you’re a beginner, it can be difficult to separate fact from fiction.

The best thing to do to spot potential myths is to make sure you carry out plenty of research before you start investing in the stock market.

Make sure you have a general understanding of how the market and economy work. You don’t have to become a financial expert, but a basic grasp of the key areas will go a long way.

Our expert says: How do you know if an investment is too good to be true?

"Typically, any investment promising or guaranteeing a huge, or specified return is cause for caution.

Even if an investment is advertising a specific return, it’s important to remember that there are no guarantees. Relatively stable stocks that offer dividends will do what it can to make those payments, but you should always keep in mind that unexpected things can happen in the market.

For all legitimate investments, there is the risk of losing money. You should tread carefully around any platform or person that offers foolproof ways to make money. Or, tries to convince you that you’ll get rich quick.

The truth is, most investing can be quite boring. It’s a slow and arduous journey with plenty of ups and downs. But, having realistic expectations from the outset will reduce the chances that you make mistakes or poor decisions."

Zoe Stabler DipFA

Senior writer

Bottom line

The stock market can be confusing territory for beginner investors. It’s understandable that it’s hard to know whom to trust and listen to. But, plenty of myths are just misunderstood concepts, or are simply not true whatsoever.

Learning how to spot what’s a myth and what’s the truth does take some time. With so many uneducated opinions floating around the internet, you’ll need to improve your own knowledge before you can decide with authority what is useful information and what’s just noise.

Frequently asked questions

• What is the biggest myth believed about the stock market?

  The most common and widespread myth tends to be the notion that the stock market is a casino and investors are just gamblers.

• Is there luck in the stock market?

  With anything you do in life, luck can play a part. It is possible to be both lucky or unlucky in the stock market. But, the majority of success will be determined by research, patience, and skill.

• Can you get rich from the stock market?

  Definitely. However, it’s important to be realistic. Building wealth doesn’t happen overnight and it usually takes years or even decades to get rich by investing in stocks.

• Is the stock market rigged?

  No, it’s not. Some people and companies may have certain advantages over smaller investors, like access to better resources. It’s important to note that the market itself is not rigged, people who often think that are usually not investors themselves.

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Written by

George Sweeney, DipFA

Deputy editor

George is a deputy editor at Finder. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, Online Mortgage Advisor, Wealth, and Compare Forex Brokers. He's focused on making personal finance and investing engaging for everyone. To do this he draws from previous work and his Level 4 Diploma for Financial Advisers (DipFA), sharing what he’s learnt. When he’s not geeking out about money, you’ll find him playing sports and staying active. See full bio

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